PSA targets supply chain savings with GM deal

PSA Group, which owns Peugeot and Citroen car brands, expects to make savings of some €1.7 billion a year following its takeover of Opel and Vauxhall.

Malory Davies FCILT, Editor.

It is targeting purchasing, manufacturing, and research and development in its drive to cut costs.

The fact that General Motors wanted to sell the European business is hardly surprising given the scale of its losses over recent years. The question is whether PSA can turn the business around.

Carlos Tavares, chairman of the group’s managing board, is bullish: “We are confident that the Opel/Vauxhall turnaround will significantly accelerate with our support, while respecting the commitments made by GM to the Opel/Vauxhall employees.”

PSA expects Opel/Vauxhall to reach a recurring operating margin of two per cent by 2020 and six per cent by 2026, and to generate a positive operational free cash flow by 2020.

For some time now there has been a significant degree of cooperation between PSA and GM. In 2012, General Motors agreed to transfer the majority of its logistics business in Europe to Gefco, which was then a PSA subsidiary, as the first step in a global alliance.

The deal covered the majority of the Opel/Vauxhall, Chevrolet and Cadillac logistics activities in Europe, including services such as material and component deliveries to manufacturing plants, delivery of finished vehicles to dealerships and the transport of aftersales spare parts to distribution centres.

PSA later sold a majority stake in Gefco to JSC Russian Railways (RZD). In November last year, PSA and Gefco signed an €8 billion deal for Gefco to manage the car maker’s entire global manufacturing supply chain.

Gefco is to design and implement global logistics and transport solutions for the PSA Group brands. It will manage and optimise the entire supply chain, from sourcing components for production and assembly plants to distributing finished vehicles. In addition to the outbound and inbound logistics services, Gefco will be responsible for distributing spare parts.

Following the deal with General Motors, there must be speculation that PSA will want to extend the terms of this deal to the Opel and Vauxhall supply chains.

There is inevitably concern over the impact of the deal on the Vauxhall and Opel plants across Europe. €1.7 billion a year is a lot of money to find and already some analysts have suggested that two or even three could go within five years.

Vauxhall has two main plants in the UK – at Luton and Ellesmere Port, which could be vulnerable with Brexit on the horizon. PSA closed its last UK assembly plant at Ryton in 2006.

PSA is hoping that this deal will give it the scale it needs to become more competitive, but the impact on supply chains will be profound.